DESPITE COVID, LEASING ACTIVITY GAINS

The Covid-19 pandemic eased its grip on the industrial market as third-quarter leasing activity bounced back along with slight improvement in overall absorption. Rental rates in 2020 have increased at a slower rate than any year since 2008. 

Net absorption was 150,642 SF in the red in the third quarter, but that was an improvement from Q2, when tenants shed 359,636 SF and as Orange County and much of the nation were in lockdown.  There were 564 lease transactions in the third quarter, the most in 10 quarters. It was a turnaround from the 388 deals in Q2, the fewest quarterly leases since the 2008-09 recession.

Orange County’s total inventory is 274.9 million SF.  The third quarter’s overall 3.6% vacancy rate is up from the 2.5% record low of late 2016, but the county remains among the nation’s tightest major markets. Fairly priced buildings for sale continue to draw multiple offers.

Because access to the ports of Los Angeles and Long Beach is vital to many industrial users, it’s worth noting that the twin ports – after reporting a 12% reduction in cargo during the first half of the year – posted record-breaking container traffic in July and August.  Port officials attributed the surge to pent up demand for imported consumer goods.

Year-to-date countywide net absorption through September was 347,362 SF, thanks to strong first-quarter tenant demand, while net absorption for the first nine months of last year was negative 1.14 million SF.  Year-over-year rent growth averages 3.7% and has been flat since Q1.

Overall third-quarter demand was down in three of the county’s four markets.  

North County – the largest market with 42% of the county’s industrial inventory across nine cities that include Anaheim, Buena Park, Brea, Fullerton and Placentia – reported 393,480 SF of net absorption in Q3.  

The largest new lease of the quarter in the county was for a 170,692 SF building on East 183rd Street in the North County submarket of La Palma.  Lee & Associates’ surveys show that North County demand is up nearly 1.1 million SF so far this year.

The 43-million-SF West County market posted the biggest loss of Q3 with 288,080 SF of negative net absorption. Tenants shed space for the third straight quarter, bringing the year-to-date total to negative 864,891 SF.

The 42-million-SF South County market reported 197,032 SF of negative absorption in Q3, bringing the negative year-to-date total to 404,450 SF. 

The 73.3-million-SF Airport market ended the quarter with 59,010 SF of space going back on the market. The 4.4% vacancy rate is down 20 basis points on 526,833 SF of positive absorption year to date.